Companies bid combined $192M in 1st Gulf of Mexico oil sale under Biden

NEW ORLEANS - Energy companies including Shell, BP, Chevron and ExxonMobil offered a combined $192 million for drilling rights on federal oil and gas reserves in the Gulf of Mexico on Wednesday, as the first government lease auction under President Joe Biden laid bare the hurdles he faces to reach climate goals dependent on deep cuts in fossil fuel emissions.

The auction came after attorneys general from Republican states successfully sued in federal court to lift a suspension on federal oil and gas sales that Biden imposed when he took office.

Companies offered bids on 308 tracts totaling nearly 2,700 square miles (6,950 square kilometers) during a virtual auction hosted by the Interior Department's Bureau of Ocean Energy Management. It marked the largest total acreage and second-highest bid total from a government auction since Gulf-wide bidding resumed in 2017.

Driving the heightened interest are a rebound in oil prices and uncertainty about the future of the government leasing program after Biden campaigned on pledges to end drilling on federally owned lands and waters, which includes the Gulf, industry analysts said.

"Prices are higher now than they've been since 2018," said Rene Santos with S&P Global Platts. "The other thing is this fear that the Biden administration is here for another three years. They're certainly not going to accelerate the number of lease sales and they could potentially have fewer sales."

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It will take years to develop the leases before companies start pumping crude. That means they could keep producing long past 2030, when scientists say the world needs to be well on the way to cutting greenhouse gas emissions to avoid catastrophic climate change.

Yet even as Biden has tried to cajole other world leaders into strengthening international efforts against global warming, including at this month’s climate talks in Scotland, he’s had difficulty gaining ground on climate issues at home.

The administration last week proposed another round of oil and gas lease sales in 2022, in Montana, Wyoming, Colorado and other western states. Interior Department officials proceeded despite concluding that burning the fuels could lead to billions of dollars in potential future climate damages.

Emissions from burning and extracting fossil fuels from public lands and waters account for about a quarter of U.S. carbon dioxide emissions, according to the U.S. Geological Survey.

"The thing that is really bedeviling people right now is this conflict between the short term and long term when it comes to energy policy," said Jim Krane, an energy studies fellow at Rice University in Houston. "We still need this energy system that is basically causing climate change, even as we’re fighting climate change."

Wednesday's livestreamed auction invited energy companies to bid on drilling leases across 136,000 square miles (352,000 square kilometers) — about twice the area of Florida. Federal officials estimated prior to the sale that it could lead to the production of up to 1.1 billion barrels of oil and 4.4 trillion cubic feet of natural gas.

Shell, the largest leaseholder in the Gulf, said the leases that the company successfully bid on could offer development opportunities near existing platforms or new areas.

"Regardless of today's outcome, the need absolutely continues for continued competitive leases in the U.S. Gulf of Mexico," said Shell spokesperson Cindy Babski.

Environmental reviews of the sale — conducted under former President Donald Trump and affirmed under Biden — reached an unlikely conclusion: Extracting and burning the fuel would result in fewer greenhouse gases than leaving it.

Similar claims in two other cases, in Alaska, were rejected by federal courts after challenges from environmentalists. Climate scientist Peter Erickson's work was cited by judges in one of the cases, and he said the Interior Department's analysis had a glaring omission: It excluded greenhouse gas increases in foreign countries that result from having more Gulf oil enter the market.

"The math is extremely simple on this kind of stuff," said Erickson, a senior scientist with the Stockholm Environment Institute, a nonprofit research group. "If new leases expand the global oil supply, that has a proportional effect on emissions from burning oil. Therefore, giving out these leases in the Gulf of Mexico would be increasing global emissions."

The Bureau of Ocean Energy Management recently changed its emissions modeling methods, citing Erickson’s work. Officials said it was too late to use that approach for Wednesday's auction.

For upcoming sales, spokesperson Melissa Schwartz said Interior is conducting a more comprehensive emissions review than any prior administration. It's also appealing the court order that forced the resumption of sales.

Erik Milito, president of the National Ocean Industries Association, said he was uncertain that using the new approach would have changed the government’s conclusions, since drilling for oil in other parts of the world is less efficient and hauling imports also adds to carbon costs.

The continued use of the old analysis rankles drilling opponents, who say Biden isn't following through on his climate pledges.

"We're talking about transitioning away from a fossil fuel economy and they are selling a giant carbon bomb of a lease sale," said attorney Drew Caputo with Earthjustice, which has a pending federal lawsuit against the Gulf sale.

Some Democrats also objected to the sale. House Natural Resources Committee Chairman Raúl Grijalva of Arizona said Biden "needs to do better" after promising to lead on climate issues but continuing a fossil fuel program with a long history of mismanagement.

The Gulf of Mexico accounts for about 15% of total U.S. crude production and 5% of its natural gas.

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Brown reported from Billings, Montana.